MBA 641 Midterm PRACTICE Sp 13 KEY

MBA 641 III.

MOCK Midterm Examination KEY Spring 2012

Risk and Return of a portfolio (10 points) 52. An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively. A. 10.0%, 6.7% B. 12.0%, 22.4% C. 12.0%, 15.7% D. 10.0%, 35.0%

Difficulty: Medium

IV. Asset Allocation (20 points) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 6%.

57. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%. A. 100% B. 90% C. 45% D. 10%

Difficulty: Easy

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MBA 641 MOCK Midterm Examination KEY Spring 2012

58. A portfolio that has an expected value in one year of $1,100 could be formed if you _________.

A. Place 40% of your money in the risky portfolio and the rest in the risk free asset B. Place 55% of your money in the risky portfolio and the rest in the risk free asset C. Place 60% of your money in the risky portfolio and the rest in the risk free asset D. Place 75% of your money in the risky portfolio and the rest in the risk free asset $1100 = x(1000)(1.16) + (1 - x)1000(1.06)

Difficulty: Hard

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